Will US Data Validate the Dollar Rally?

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Market Drivers March 31, 2017
UK GDP Misses
USDJPY can’t hold 112.00
Nikkei -0.73% Dax -0.12%
Oil $50/bbl
Gold $1242/oz.

Europe and Asia:
EUR Unemployment Change -30K vs. -12K
GBP UK GDP 1.9% vs. 2.0%

North America:
USD PI/PS 8:30
CAD GDP 8:30

It’s been a subdued night of trade in Asian and early European session on the last trading day of the week as most of the majors remained in contained ranges with the dollar mildly bid against the yen and euro.

Cable was the main mover of the night first rising ahead of UK GDP data, but then falling on the release of the report. The final Q4 UK GDP reading was disappointing coming in at 1.9% versus 2.0% eyed. Services showed their first drop since March of last year while household income dropped by -0.4%.

The news should be troubling for any cable bulls because it suggests that UK economy is starting to slow while inflation driven by lower pound is beginning to eat away at consumer purchasing power. The news comes at a particularly sensitive time for UK fiscal authorities as they must begin to negotiate Brexit terms from a position of weakness that is further exacerbated by the fact that the EZ economy is actually improving.

Cable saw little reaction to the news remaining steady at 1.2460 but the unit could see further weakness when North American traders come on line.

Meanwhile, the dollar remained well bid against the yen with USDJPY holding just below the 112.00 figure with US rates inching up as well. Today’s key event risk will be personal income and personal spending. The data could be crucial to the dollar rally because as Wall Street Journal pointed out yesterday there is a massive disconnect between consumer sentiment and consumer spending. While the former is near record highs the later remain tepid at best and may be the primary reason for bond markets lackluster reaction to the reflation trade. Therefore any upside surprise in today’s data could have a strong impact on USDJPY and push it higher as the day proceeds.

Boris Schlossberg
Managing Director

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